Two further barriers to UK mobile money

Posted by Charles Weir

The prospect of mobile money is exciting to Network operators, phone manufacturers, payment networks and banks: They’re all looking forward to consumers making payments with intelligent devices, creating better opportunities for customer engagement, and bringing benefits in terms of greater money security. Moreover, the devices are paid for by the consumers. There’s a vision of a ‘cashless society’ where we really don’t need cash at all; where all payments can be through electronic services.

Of course there are a number of barriers to the take-up of such a service. At the moment everyone’s concentrating on the most obvious ones: lack of technology, smartphones, infrastructure, commercial agreements and lack of ‘anonymity’.

Yet if the vision of a cashless society is to be realised, the UK has two further barriers:

(i) Age: At the moment, most forms of money payment are based on credit and debit cards. Because they allow remote purchases, the systems have to be quite stringent in ensuring the identity of the person and their ability to take legal responsibility for purchases. Some, like Electron, have less demanding needs, but all have restrictions on the age of the user. I have found those age limits a problem in connection with my own young children's pocket money! A system that doesn’t support children buying toys is hardly universal.

(ii) Transaction Fees: This issue will be familiar to anyone who's tried to use cards in small shops, for small purchases. Many merchants have a limit on the size of transactions they will take, saying for example: "we won’t accept your card for a transaction of less than five pounds". This is because of the charging regimes exacted by the payment networks, which impose minimum fees per transaction.

Visitors to the UK from parts of Scandinavia, for example, where cards are regularly in use for every size and form of transaction, find these restrictions bizarre. Coming to the UK and having to rely on cash is rather like going back to the Stone Age and needing to trade entirely with pobble beads. Banks in some countries issue cash-payment-only cards suitable for young children; they have a charging structure for payments that allows profitable transactions equivalent to a few pence.

The point about children is doubly important to the long-term phasing out of cash. People accept what they’ve grown up with; until children grow up without cash, the adults they become will expect cash to be part of their lives. So depriving children of payment cards will delay the ‘cashless society’ by a generation.

So the wider take-up of mobile money in the UK is going to need a change not only in the payments infrastructure, but also the supply of cards for children and the charging terms for payments.

I don’t believe that’s being considered at the moment, but it will need to be done.